Bank of China

BOC, Agricultural Bank to allow relaxed mortgage policies

Lenders encourage branches to enhance mortgage terms for homebuyers

PUBLISHED : Thursday, 25 September, 2014, 12:36pm
UPDATED : Friday, 26 September, 2014, 4:44am

Two of the mainland's biggest lenders, Bank of China (BOC) and Agricultural Bank of China, are encouraging their branches to bolster mortgage lending, and industry watchers say the news could boost market sentiment but be of little help in restoring buying confidence.

"We will be active in supporting individual home purchases," BOC said in a statement.

It said bank branches are allowed to adjust mortgage policies in accordance with local market conditions. They can use different policies to address customer demand for home purchases in order to enhance the efficiency in approving loans, BOC said in a statement on Wednesday.

That day, Agricultural Bank also issued a statement saying the bank would increase its mortgage lending in order to meet the demand of first-time homebuyers and upgraders who trade up for bigger flats to improve their living conditions. The bank said it would also speed up the approval process for loans.

Speculation has swirled that China's four largest banks may ease mortgage lending and even offer 30 per cent discounts on the benchmark rate for first-time buyers in an attempt to prevent a slump in property sales, mainland media reported.

"The news could boost market sentiment. But the decline in sales is because potential buyers remain cautious about the market's outlook. What they are concerned about is whether the property they buy will appreciate, not the cost," said Tao Dong, the chief regional economist at Credit Suisse.

Although more than 40 cities have either scrapped or loosened purchase restrictions put in place by the government to cool the property market, analysts said the measures have had little impact in boosting sales.

The restriction barring buyers from purchasing more than two homes remains in place in Beijing, Shanghai, Guangzhou, Shenzhen and Sanya.

Tao did not rule out the possibility homebuyers may opt to forego home purchases in the second half this year.

Alfred Lau, an analyst at Bocom International, cast doubts on whether banks would fully relax mortgage lending, saying state-owned lenders prefer to lend to small to medium-sized enterprises as it generated higher interest margins.

"But the trend for homebuyers to secure home loans should be easier than several months ago," he said.

Local governments are feeling the pinch of the recent downturn in the property market.

Jefferies Securities noted local government kicked off a new round of credit support for first-time buyers. Jefferies property analyst Venant Chiang wrote that the Hubei Provincial Housing Department announced a measure to let banks offer a 30 per cent discount on mortgage loan rates for first-time buyers.

"We doubt it is enough to restore buying confidence. We believe developers' credit risk is more dependent on sales performance," he said.